Question 1

What level are inputs for estimating fair values are based on inputs that are readily available via prices for identical assets or liabilities in actively traded markets such as securities exchanges?

Accepted Answer

Inputs for estimating fair values based on readily available prices for identical assets or liabilities in actively traded markets are classified as Level 1 inputs.

Question 2

If a portfolio manager had to estimate the fair value of private equity funds invested in a young,privately-held start-up company,which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer

Private equity funds invested in a young privately-held start-up company are illiquid and have no easily observable market prices. Therefore, the portfolio manager would have to use Level 3 inputs, which rely heavily on unobservable inputs and significant management judgment to estimate the fair value of these funds. Level 1 inputs have the highest degree of observability and are used for assets that have quoted prices in active markets, while Level 2 inputs are used for assets that have observable market inputs but are not considered active.

Question 3

Relevant asset valuations refer to all of the following except:

Accepted Answer

The other three options are characteristics of relevant asset valuations, while the subjectivity of valuations may or may not be present depending on various factors, such as the valuation method used and the expertise of the valuator.

Question 4

If a portfolio manager had to estimate the fair value of investments in timber,which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer

The fair value of timber investments would most likely require Level 2 or 3 inputs as there may not be readily available market prices for timber. Level 1 inputs rely on quoted market prices and would not be applicable in this case. Level 2 inputs are observable inputs other than quoted prices, while level 3 inputs are unobservable inputs based on assumptions and estimates. The portfolio manager may need to consider factors such as regional timber prices, demand-supply dynamics, and economic forecasts to arrive at a fair value estimate for timber investments.

Question 5

When recognizing deferred tax assets and liabilities,the income statement approach and the balance sheet approach yield identical results

Accepted Answer

Both (a) and (b) are correct. The income statement approach and the balance sheet approach will yield identical results only if the enacted tax rates applicable to future periods do not change and the firm recognizes no valuation allowance on deferred tax assets.

Question 6

If a portfolio manager had to estimate the fair value of privately placed bond issues,which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer

The answer of If a portfolio manager had to estimate...

Question 7

U.S.GAAP,IFRS,and other major accounting standards are best characterized as

Accepted Answer

U.S. GAAP, IFRS, and other major accounting standards use a mixed attribute accounting model, meaning they rely on a combination of historical cost and fair value measurement. This approach attempts to balance the reliability of past transaction information with the relevance of current market values.

Question 8

Which of the following would not represent an acquisition cost to be added to the purchase price of building:

Accepted Answer

The cost of grading the land would not represent an acquisition cost to be added to the purchase price of a building. Grading the land would be considered a land improvement cost and not a building acquisition cost.

Question 9

U.S.GAAP and IFRS allows the use of present value to calculate the cost of an asset except:

Accepted Answer

The answer of U.S.GAAP and IFRS allows the use of...

Question 10

Historical costs include all of the following except:

Accepted Answer

Historical costs refer to the original and actual cost of acquiring an asset. Net realizable value is not a historical cost, as it refers to the estimated selling price of an asset, minus any applicable costs of sale. Choices A, C, and D reflect historical costs.

Question 11

If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities,which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer

Level 3 inputs are used for assets whose value cannot be determined through observable market data, such as illiquid mortgage-backed securities. A portfolio manager would need to use a significant amount of internal assumptions and estimates to determine the fair value of these assets, making them Level 3 inputs.

Question 12

What level are inputs for estimating fair values are those inputs include quoted prices for similar assets or liabilities in active or inactive markets,other observable information such as yield curves and price indexes,and other observable data such as market-based correlation estimates?

Accepted Answer

Inputs for estimating fair values that include quoted prices for similar assets or liabilities in active or inactive markets, other observable information such as yield curves and price indexes, and other observable data such as market-based correlation estimates are classified as Level 2 inputs. Level 1 inputs are quoted prices in active markets, and Level 3 inputs are unobservable inputs that require significant judgement and estimation techniques.

Question 13

The existence of subjectivity in an asset valuation does not necessarily mean the valuation will not be reliable.All of the following are examples of this except:

Accepted Answer

The answer of The existence of subjectivity in an asset...

Question 14

The accounting equation is represented by Assets= Liabilities + Stockholders' Equity which of the following would cause a change in the stockholders' equity accounts:

Accepted Answer

C: Issuing preferred stock increases stockholders' equity.D: Repurchasing common stock decreases stockholders' equity.

Question 15

All of the following can be used to describe reliability of accounting information except:

Accepted Answer

Biased cannot be used to describe reliability of accounting information as bias reduces the accuracy and objectivity of accounting information. The other three options (B, C, and D) all contribute to the reliability of accounting information.

Question 16

Valuation methods that reflect current values or a combination of historical and current values include all of the following except:

Accepted Answer

The methods listed in options A, B, and C all reflect current values or a combination of historical and current values. Option D, adjusted acquisition costs, focuses solely on historical costs and does not account for any changes or fluctuations in the value of the asset over time.

Question 17

Firms may not include all income taxes for a period on the line for income tax expense in the income statement.Other places that income tax expenses may occur include all of the following except:

Accepted Answer

Income tax expenses would not be related to the issuance of common stock.

Question 18

What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability,such as using various data to estimate present values?

Accepted Answer

The answer of What level are inputs for estimating fair...

Question 19

Reporting financial assets and liabilities at fair values also is referred to as:

Accepted Answer

Reporting financial assets and liabilities at fair values is referred to as mark-to-market accounting. Under this accounting method, assets and liabilities are valued at their current market prices, which can change over time. It provides a more accurate representation of a company's financial position than historical cost accounting, which records assets and liabilities at their original cost, and acquisition cost accounting, which records assets and liabilities at the price paid to acquire them. Mortgage-backed cost is not a relevant term in this context.

Question 20

If a portfolio manager had to estimate the fair value of real estate,which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer